Competition Compliance

The Japan Fair Trade Commission (JFTC) is keen on competition compliance, describing its strict and active enforcement and its support and advocacy of competition compliance efforts as ‘a pair of wheels’ in competition policy. It has often conducted surveys on efforts in business of competition compliance from various viewpoints and made those results, along with its comments, available on its dedicated webpage, titled ‘corporate compliance’. Since 2006, the surveys have covered competition compliance by companies (2006, 2009, 2010, 2012), compliance with foreign competition laws by companies (2015), competition compliance by trade associations (2016), compliance by foreign-affiliated companies (2008), and compliance in the construction business (2007).

The general attitude of business to competition compliance is very positive. The JFTC’s 2012 survey conducted on companies listed on the first section of the Tokyo Stock Exchange showed that 68.8 per cent of the companies had established an Antimonopoly Law (AMA) compliance manual and that more than 80 per cent of the companies had conducted AMA compliance training internally.

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There is no government-approved standard for compliance programmes. However, in the survey reports, the JFTC has identified the ‘3Ds’ as essential measures to be included in corporate compliance programmes so as to ensure the effectiveness of compliance as a ‘tool for controlling and avoiding risks’. The 3Ds are:

• deterrence: preventing violations of the AMA through training and other measures;
• detection: early discovery of AMA violations through audits; and
• damage control: appropriate responses to violations of the AMA.

Further, the JFTC states that to share an AMA compliance programme across the whole company and to operate it in a unified manner, it should be written and made easily accessible to personnel by listing it as such on the corporate intranet or similar.

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The JFTC states in its survey report that ‘[s]pecific risks of individual companies concerning AMA violations differ significantly according to the business content, market environment and other factors’, and that a model compliance programme is not sufficiently effective. The JFTC suggests that to establish an effective compliance programme, a company should focus on its unique antitrust risks, taking account of ‘the business size, business content and organisational climate, and external factors including the actual state of the industry, the market situation, and relevant legal systems’.

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The sanctions against a violation of the AMA are the JFTC’s cease-and-desist order, the JFTC’s administrative surcharge order, and a court’s criminal fine or jail sentence (only applicable where the JFTC makes a criminal accusation, considering the violation to be serious). The fact that a company has a competition compliance programme in place will be considered in the context of the JFTC’s cease-and-desist order and as a general mitigating factor in the sentencing by court. However, it will not be considered in calculating the amount of the administrative surcharge imposed by the JFTC.

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There is no standard practice, but it is common for a Japanese company to provide a clause about its commitment to competition compliance in its code of conduct, and to provide detailed rules of competition compliance in its competition compliance manual. In addition, the JFTC states in its survey report that the top management’s commitment to and initiative on competition compliance is the most important element in ensuring the effectiveness of a competition compliance programme.

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There are two ways to detect and identify antitrust risks. The first way is to obtain information directly from employees. In doing so, the JFTC recommends employing an internal reporting system and in-house leniency policy. The second way is to detect antitrust risks through internal audits by personnel in charge of legal or compliance departments.

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The legal and compliance department generally takes a key role in risk assessment. The JFTC stresses in its survey report the importance of establishing and utilising a system to consult with the legal and compliance department, stating that it is ‘necessary not only for deterring acts in violation of the AMA but also for preventing sales activities from being excessively hampered due to concern regarding possible AMA violations’.

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To mitigate antitrust risks when an actual or potential violation is detected, a company should conduct an internal investigation and consider making a leniency application. As it requires special expertise and resources, the JFTC recommends a company have a contingency manual that describes necessary actions to be taken in case of detection of antitrust risks. Many Japanese companies have established such contingency manuals. In addition, an increasing number of Japanese companies have additionally established manuals that address a situation where the JFTC conducts a dawn raid on a company’s premises, covering how to observe and cooperate with the raid, how to preserve documents and how to maintain a legal privilege (note that Japan does not recognise attorney-client privilege, but it is important to maintain a legal privilege to deal with possible foreign procedures).

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There is no standard for the review, but periodical review of a compliance programme is necessary as the legal standards of antitrust violations change from time to time (note also that Japanese companies are exposed to antitrust risks not only in but broadly outside of Japan, and the number of countries implementing competition laws are increasing), and the quality of Japanese companies’ compliance programmes has been improved accordingly.

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Article 3 of the AMA prohibits a company from causing an unreasonable restraint of trade and article 2, paragraph (6) of the AMA provides the meaning of ‘unreasonable restraint of trade’.

In accordance with these rules, a company must avoid entering into any contract, agreement or any other means (irrespective of what it is called), in concert with other companies, mutually restrict or conduct their business activities in such a manner as to fix, maintain or increase prices, or to limit production, technology, products, facilities or counterparties, thereby causing, contrary to the public interest, a substantial restraint of competition in any particular field of trade.

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A company should conduct thorough analysis of the market where it plans to enter into an agreement with a competitor. The competition law risk of the arrangement may become substantial if there are certain market conditions including, among others, the number of players being relatively small, the consolidated market share after the arrangement with the competitor being relatively high, or the competition pressure from customers in the market being relatively weak. In order to make the above-mentioned analysis, consultation with professionals may be a prudent option.

A company can also make a prior consultation with the JFTC to discuss whether the possible arrangement with the competitor contains a risk of unreasonable restraint of trade. The prior consultation is held under one of the JFTC’s guidelines, ‘Prior Consultation System for Activities of Business’, and the JFTC must give a response in writing within 30 days of the official receipt of an application for prior consultation. When a response confirms that there is no conflict between the action and the AMA, no legal measure will be taken against the act covered in the consultation on the basis of a conflict with the AMA.

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No specific requirement exists as for a form of behaviour constituting a cartel. Pursuant to article 2, paragraph (6) of the AMA, any type of contract, agreement or any other means (irrespective of what it is called) can be regarded as a cartel.

With respect to attempts at prohibited behaviour, pursuant to a decision of the Supreme Court as of 24 February 1984 (Oil Cartel (Price-Fixing)), neither the implementation of an agreement nor an increase in price are required for a violation under the AMA.

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Cartels can be exempted from sanctions when statutes (the AMA and other statutes) have specific exemptions. Such exemptions include exercise of intellectual property rights (article 21 of the AMA) and certain types of conduct in the transportation sector (pursuant to, among others, the Aviation Law and the Road Transportation Law).

Japan has no prior notification mechanism for cartels to be exempted from sanctions.

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Information exchange is regulated in a framework of cartel prohibition in Japan. If a company engages in information exchanges with its competitors that may cause an unreasonable restraint of competition in any particular field of trade through mutually restricting or conducting their business activities, such information exchange may constitute a cartel.

Because Japan has no specific rule for the criteria as to what constitutes competitively sensitive information, case-specific analysis is required to determine what kind of information is considered competitively sensitive. In general, factors that may substantially affect competition among market participants (eg, price, volume and capacity) are likely to be considered competitively sensitive.

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Japan has a leniency programme applicable to unreasonable restraints of trade (ie, cartel and bid rigging). The programme is only available for companies and offers full immunity or reduction of the surcharges pursuant to article 7-2, paragraph (10) of the AMA. As to criminal accusations, the JFTC has a policy not to file accusations to the public prosecutors’ office against the first company that submitted qualified reports and materials before the start date of the investigation, nor against the officers, employees and the other persons of the company that engaged in the behaviour.

The requirements for full immunity from the surcharges are described in article 7-2, paragraph (10) of the AMA as:

• the company is the first among the companies that committed the violation to individually submit reports and materials regarding the facts of the said violation to the JFTC; and
• the company did not commit further acts on or after the investigation start date in connection with violation under investigation.

Pursuant to article 7-2, paragraph (11) and (12) of the AMA, a reduction of the surcharges is to be granted when the following requirements are met (the total number of companies that may apply to the leniency programme is no more than five (up to three applicants on or after the investigation start date)).

Requirements when the leniency application was made prior to the investigation start date:

• the company is the second (reduction of 50 per cent), the third, the fourth or the fifth (reduction of 30 per cent) among the companies that committed the violation to individually submit reports and materials regarding the facts of said violation to the JFTC;
• the company is not one that committed the said violation on or after the investigation start date in regard to the said violation; and
• the fourth and the fifth applicants should submit reports and materials including the facts other than those already ascertained by the JFTC.

Requirements when the leniency application was made on or after the investigation start date (reduction of 30 per cent):

• the company, in accordance to the JFTC’s Rules, individually submitted reports and materials of the facts regarding the violation (excluding materials related to the facts already ascertained by the JFTC) to the JFTC by the deadline set in the JFTC’s Rules after the investigation start date for the case of the said violation;
• the company is not one that committed the said violation on or after the day when the reports and materials were submitted; and
• the applicants on or after the investigation start date should submit reports and materials including the facts other than those already ascertained by the JFTC.

In addition to above, the following requirements in article 7-2, paragraph (17) of the AMA and section 8 of the Rules on Reporting and Submission of Material regarding Immunity from Reduction of Surcharges must be complied with by the applicant to make a determination of applicability of the leniency programme:

• the report or materials submitted by the applicant should not contain false information;
• the applicant must submit the requested reports or materials and must not submit false reports or false materials responding to the JFTC’s additional requests;
• the applicant should not coerce other enterprises to commit the violation or block other enterprises from ceasing to commit the said violation in the same case; and
• the applicant must not disclose the fact of application to third parties without justifiable reasons.

As for the confidentiality of the identification of the applicants, the JFTC will not disclose the name of the applicants during the investigation process. Once the leniency programme is officially applied, however, the JFTC shall announce the name of the applicants in its press release.

There is a proposal in the ongoing reform of the AMA to change the current leniency system substantially. After the reform, the JFTC is expected to have certain discretion for the amount of the reduction that is given for each leniency applicant (see question 42).

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Only companies may apply for the immunity from or reduction of surcharges. There is no leniency programme applicable to individuals. As to criminal charges, the JFTC has a policy that it will not file accusations to the public prosecutors’ office against the officers, employees and other persons of the first company that submitted qualified reports and materials before the start date of the investigation.

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A company may reserve a place in line before submitting detailed facts of the violation. In the case of a leniency application prior to the investigation start date, a company that is going to report and submit materials must submit a written report containing a summary of the violation by facsimile. Based on the order of the receipt of these reports, the JFTC identifies and notifies a provisional place in line for each applicant. When all the requirements for leniency applications are confirmed to be fulfilled, the JFTC will make a formal decision as for the eligibility of the leniency programme and the ‘place in line’ of each applicant.

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No. Even if a company intends to be a whistle-blower on other cartels in the course of an investigation on a cartel, the company cannot receive any extra benefit for the original case. The benefit that a company may obtain from a leniency application is only relevant to the case for which it has submitted reports and materials.

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The AMA regulates vertical arrangements primarily through its prohibition of ‘unfair trade practices’ and ‘private monopolisation’. While a company requires a substantial restraint of competition to constitute a private monopolisation infringement, it requires a finding of only the likelihood of impeding fair competition to establish an infringement of unfair trade practices. However, when assessing many types of unfair trade practices, the JFTC needs to consider the possible effect of the act on competition and thus the market shares of the parties are still relevant.

The types of conduct classified as unfair trade practices are as follows:

• refusal to trade;
• discriminatory pricing or treatment;
• unjust low price selling;
• unjust high price purchasing;
• resale price maintenance;
• customer inducement through deception or unjust benefits;
• tie-in;
• exclusive trading;
• trading on restrictive terms;
• unjust interference with the appointment of an officer;
• interference with a competitor’s transactions;
• interference with the internal operation of a competitor; and
• abuse of superior bargaining position.

Resale price maintenance is, in principle, illegal unless it has a justifiable reason. However, it is usually not illegal, if a direct purchaser to which a supplier instructed a resale price only functions as a commission agent and the sale is in substance being done between the supplier and its ultimate purchasers.

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There is no per se concept under the AMA. However, the JFTC considers certain price restrictions, including resale price maintenance, as being in principle illegal unless they are supported by a justifiable reason. As it is practically difficult to persuade the JFTC in terms of a justifiable reason, a company needs to be careful when considering the legality of price restrictions.

On the other hand, the JFTC normally assesses non-price restrictions in terms of whether they have the effect of market foreclosure or price maintenance by taking into account various factors, such as: inter-brand competition, intra-brand competition, the market share of the acting company, and the number or presence of the companies subject to the restrictions. This is a similar approach to ‘rule of reason’ in other jurisdictions.

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Intra-group vertical arrangements can be exempted from the application of unfair trade practices.

A transaction between a parent and its wholly owned subsidiary or between sister companies wholly owned by the same parent is usually not subject to the regulation of unfair trade practices. Even a transaction between a parent and its subsidiary or between sister companies, in which less than 100 per cent of the shares (in principle, more than 50 per cent) are held by the parent, are not in principle subject to the regulation of ‘unfair trade practices’, assuming the transactions are in substance equivalent to intra-company transactions. Whether or not a transaction is in substance equivalent to an intra-company transaction is to be determined on a case-by-case basis by taking into account various factors, including:

• the stock holding ratio of the parent;
• executives sent from the parent to its subsidiary;
• the involvement of the parent in financial matters and business policy of its subsidiary; and
• the business relationship between the parent and its subsidiary (eg, percentage of trade with the parent in the total trade of the subsidiary).

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Under the AMA, a company is not required to have dominance to engage in unfair trade practices or private monopolisation. In order to engage in private monopolisation, which is equivalent to an abuse of dominant position in other jurisdictions, a company must cause a ‘substantial restraint of competition’ in the relevant market. In order to assess whether there is a substantial restraint of competition, the JFTC generally takes into account various factors, including:

• market share and ranking of an infringing company;
• status of competition in the relevant market;
• status of its competitors;
• potential competitive pressure of entry (including entry barriers);
• customer’s bargaining power;
• efficiency; and
• other justifiable reasons to benefit consumers (eg, safety and health).

The Exclusionary Private Monopolisation Guidelines (Monopolisation Guidelines) provide that a market share in excess of 50 per cent is generally considered by the JFTC in setting its enforcement priorities.

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There are two types of conduct that constitute ‘private monopolisation’ under the AMA: exclusionary conduct by exclusion and exploitative conduct by control.

Exclusion is interpreted as making it difficult for other companies to continue their business activities or preventing them from entering the market. The Monopolisation Guidelines refer to the following types of conduct as typical examples:

• below-cost pricing;
• exclusive dealing;
• tying; and
• a refusal to supply and discriminatory treatment.

Control is interpreted as depriving other companies of their freedom to make decisions on their business activities and forcing them to follow the controlling company.

In the past 20 years, there have been only 11 enforcement cases against private monopolisation. One recent high-profile case is the case against the Japanese Society of Authors, Composers and Publishers (JASRAC), a dominant copyright collective association in Japan, in which the JFTC issued a cease-and-desist order against JASRAC to stop its pricing policy for copyright licensing fees in 2009. JASRAC was alleged to have taken advantage of its dominant position in the relevant market. JASRAC appealed the order to the hearing procedure within the JFTC and the JFTC decided to rescind the original order in 2012. However, a competitor of JASRAC appealed the decision to the Tokyo High Court. The court overturned the JFTC’s decision in 2013, finding an infringement. JASRAC and the JFTC appealed the court’s ruling to the Supreme Court; however, the court dismissed the appeal.

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There is no exemption for private monopolisation under the AMA. However, the new legislation came into force in December 2018, pursuant to which the JFTC can decide not to issue any cease-and-desist order or surcharge order against an infringement subject to its investigation (mainly single firm conduct) if a company voluntarily proposes effective remedies to the JFTC and the JFTC approves them.

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Yes. When the scheduled transaction is within the types of transactions for which the AMA requires a merger filing and the relevant filing thresholds are met, a party or parties to the transaction have to submit a mandatory merger notification to the JFTC. There is no notification deadline, but the parties to the transaction cannot close the transaction until the expiration of the statutory waiting period that is to be counted from the date of the formal receipt of the notification.

The types of the transaction for which the AMA requires a merger filing are an acquisition of voting rights that exceeds either 50 per cent or 20 per cent, merger, corporate split, joint share transfer and acquisition of business.

As for the filing thresholds, the consolidated turnover in Japan of each party is relevant. The key thresholds for transactions other than business transfers are: consolidated turnover in Japan of the acquirer or one party exceeds ¥20 billion; and consolidated turnover in Japan of the target or other party exceeds ¥5 billion. The key thresholds for a business transfer are: the consolidated turnover of acquirer exceeds ¥20 billion and the consolidated turnover in Japan generated by the target business exceeds ¥3 billion.

The party responsible for notification differs depending on the type of transaction. As for an acquisition of voting rights or business, the acquirer has responsibility. As for a merger, corporate split, and joint share transfer, both parties have responsibility.

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The merger control regime in Japan has two review phases.

Normally a transaction is reviewed in Phase I, which has a 30 calendar day review period (counted from the formal receipt of the notification form and all attached materials). If, however, the JFTC considers that more detailed review is necessary and makes an official request for information, the Phase II review starts.

In Phase II, the review period is extended to 120 days from the date of the formal receipt of the notification form and all attached materials or 90 days from the date of formal receipt of all the response to the official request for information, whichever is later.

Though there is no simplified procedure in Japan, the JFTC may, when necessary, shorten the waiting periods. The shortening of the waiting period is permitted, in principle, under the condition that it is evident that the effect of the reviewed transaction may not substantially restrain competition in any relevant market, and the notifying company requests in writing to shorten the waiting period.

Though the review period differs depending on the cases, the vast majority of merger reviews are concluded in Phase I.

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No. The JFTC only examines whether the notified transaction will substantially restrain competition in any particular field of trade. In this regard, the termination of the merger review cannot be interpreted as the JFTC’s having made a review on any other aspects of the transaction (eg, terms and provisions in the relevant documents).

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A fine of not more than ¥2 million is applicable to a failure to file a notification, incorrect or misleading information in a notification or failure to observe waiting periods.

In addition, the JFTC may issue a cease-and-desist order against the parties if it finds that the transaction which was not appropriately notified has the possibility of causing a substantial restraint of competition in any particular field of trade. As for a failure to comply with the cease-and-desist order, imprisonment with work for not more than two years or a fine of not more than ¥3 million for a person and a fine of not more than ¥300 million for a company may be applicable after it has become final and binding. Also, a non-penal fine of not more than ¥500,000 may be applied to any person who has violated a cease-and-desist order.

To date, no actually sanctioned case exists in Japan for non-compliance with merger controls.

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Though separate legal representation may be desirable for the company and for the officers or employees of the company when conflicts of interest exist between them, almost all officers or employees who have committed a violation of the AMA in the course of their employment are advised by the legal counsel of the company they are working for. The JFTC usually does not require separate legal representation during the investigations.

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The JFTC typically launches a dawn raid in cartel and bid-rigging cases.

There are two types of investigations for which the JFTC may launch a dawn raid. Most dawn raids are conducted under administrative investigation, but some are conducted under compulsory investigation of criminal cases. In the course of an administrative investigation, the JFTC may launch a dawn raid in any type of case as long as it believes there may be a violation of the AMA. In the course of a compulsory investigation of criminal cases, the JFTC may launch a dawn raid only when there may have been a violation of articles 89 to 91 of the AMA.

Among others, the following procedural rules as well as the AMA itself should be complied with by the JFTC during dawn raids:

• Enforcement Ordinance on the AMA;
• Rules on Administrative Investigations;
• Rules on Compulsory Investigation of Criminal Cases; and
• Rules on Reporting and Submission of Materials.

The JFTC may conduct dawn raids on any premises as long as the investigator reasonably believes the place is necessary to be raided with respect to the investigation. Typically, the JFTC conducts dawn raids on business offices of the company. Though no specific rules on digital searches exist, the guidelines on investigations under the AMA clearly state that electronic data is subject to investigation and submission.

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A company that is subject to a dawn raid has an obligation to cooperate with the dawn raid. If the company violates the obligation, the company shall be subject to a criminal fine of not more than ¥3 million.

Pursuant to section 22 of the Rules on Administrative Investiga­tions, a company that is subject to a dawn raid may make a motion for objection to the JFTC within one week of the day on which the measure was taken.

Although the JFTC may allow the company to let a lawyer attend the dawn raid, the JFTC may start dawn raids without the attendance of the lawyer as the company has no legal right to let its lawyer attend the dawn raid.

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There is no settlement system in Japan.

In accordance with the new legislation that came into force in December 2018, however, the JFTC can decide not to issue any cease-and-desist order or surcharge order against an infringement subject to its investigation (mainly on single firm conduct) if a company voluntarily proposes effective remedies to the JFTC and the JFTC approves them (the Commitment System).

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Under the newly introduced Commitment System, the JFTC is expected to take the applicant’s plan for the reform of the compliance programme into consideration.

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Corporate monitorships have not been used in Japan.

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Under the newly introduced Commitment System, no such rule exists.

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Attorney-client privilege is not available in Japan. There is a proposal in the ongoing reform of the AMA to introduce attorney-client privilege (see question 42).

As for the privilege against self-incrimination, an individual who is alleged to be involved in a violation of the AMA may invoke privilege in the course of an interview under compulsory investigation of criminal cases. Under the administrative investigation process, however, the privilege against self-incrimination cannot be invoked.

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Confidential information of the company or individual involved in investigations is protected by the confidentiality obligation of the current and former staff of the JFTC.

Pursuant to article 38 of the AMA, current officials of the JFTC must not express their opinions outside the JFTC on the existence or non-existence of facts or the application of laws and regulations with regard to a case. Also, pursuant to article 39 of the AMA, current and former officials of the JFTC shall not divulge or make surreptitious use of trade secrets of enterprises that came to their knowledge in the course of their duties.

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Any person who refuses to cooperate with the authorities in an administrative investigation shall be subject to punishment by imprisonment with work for not more than one year or by a fine of not more than ¥3 million (article 94 of the AMA).

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No. Although article 45, paragraph (1) of the AMA describes that any person who believes there to be a fact in violation of the AMA may report the fact to the JFTC and ask for appropriate measures to be taken, the reporting is not compulsory.

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Cease-and-desist orders and surcharge payment orders may not be made after five years have elapsed since the date of discontinuation of the violation. On the other hand, there is no limitation period for the completion of an investigation or to make a decision on the merits.

There is a proposal in the ongoing reform of the AMA to extend the limitation periods to seven years (see question 42).

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Article 2, paragraph (9) of the AMA and the Designation of Unfair Trade Practices specify a variety of anticompetitive conducts as ‘unfair trade practices’, some of which have a feature of vertical arrangements.

For details of unfair trade practices, see question 19.

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A substantial reform proposal for the AMA is under discussion. The proposal mainly contains the following items:

• To deter violations of the AMA more effectively, the proposal contains a reform of the calculation of the amount of the administrative surcharge. After the reform, the amount of the administrative surcharge is expected to be generally increased. The proposal also contains the extension of limitation periods for infringement to seven years.
• To increase the JFTC’s administrative flexibility and companies’ incentive to cooperate with the JFTC’s investigations, the proposal contains the reform of the leniency system. After the reform, the JFTC is expected to have certain discretion for the amount of the reduction that is given for each leniency applicant.
• To make the reformed leniency system more effective and to substantiate the protection of due process, the proposal contains the introduction of attorney-client privilege. This is expected to be introduced for the administrative investigation procedure for the unfair restraint of trade (ie, cartel and bid-rigging).

The proposal is currently under discussion at the Diet. It is expected that the proposed reform of the AMA will come into effect in 2020 or later.

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